UMKM Credit Growth Remains Sluggish Amid Banking Caution

Slow Growth in UMKM Credit

The growth of credit to micro, small, and medium enterprises (UMKM) continues to lag behind other credit segments, with only 0.23% year-on-year growth as of September 2025. In contrast, corporate credit grew by 11.53% during the same period. The Financial Services Authority (OJK) has identified that banks' cautious approach to lending is a primary factor contributing to this slow growth.

Banking Caution Due to High Risk

Dian Ediana Rae, OJK's Executive Head of Banking Supervision, explained that banks are being more selective in extending new credit due to the high risk associated with UMKM loans. The focus has shifted towards maintaining credit quality, particularly in light of policies related to bad credit write-offs and settlements.

Regulatory Measures to Boost UMKM Credit

To address the slow growth, OJK has introduced POJK Number 19/2025 concerning the facilitation of UMKM financing. This regulation aims to simplify the process for banks to extend credit to UMKM, thereby accelerating the disbursement of funds. Additionally, OJK is working on developing a more comprehensive approach in collaboration with relevant institutions to strengthen the UMKM ecosystem. This includes improving banking processes, enhancing UMKM capabilities through training and financial literacy, and expanding market access.

Balancing Prudence and Growth

While encouraging banks to support UMKM growth, OJK emphasizes the importance of maintaining prudent lending practices. Banks must balance the need to support UMKM with the responsibility of safeguarding public funds. The regulatory body is committed to creating an environment that fosters UMKM development while ensuring financial system stability.